You know that payment for order flow = Citadel and other market makers paying @RobinhoodApp fractions of a cent for the exclusive privilege to fill an order.
But the question you should be asking is WHY?
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After all, NBBO requires brokers to get the best available price from all equities exchanges for their customers. So why would Citadel pay anything to Robinhood?https://en.wikipedia.org/wiki/National_best_bid_and_offer#:~:text=National%20Best%20Bid%20and%20Offer%20(NBBO)%20is%20a%20regulation%20by,as%20governed%20by%20Regulation%20NMS …
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The reason is that
@RobinhoodApp orders execute INSIDE of bid-ask spread (difference btw lowest bid and highest ask orders) on registered venues like@NYSE and@Nasdaq. How is that possible?Show this thread -
Guess who's setting those low bid and high ask orders? Citadel and other hedge funds. Exchange rules restrict access to only the top hedge funds.
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So
@RobinhoodApp, with Citadel's assistance, is essentially profiting from bypassing registered exchanges. That might not be a bad thing, but I think we should all be aware of it.Show this thread
End of conversation
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